Oil tumbles as US and Iran pause strikes; bonds rally

Oil prices fell sharply and government bonds rallied after the United States and Iran paused strikes, with Brent crude dropping as much as 7.4% to under $90 a barrel and the 10-year US Treasury yield falling five basis points to 4.63%.

Markets moved on Monday after reports that US forces had not carried out further strikes since late Friday and Iran’s military announced it had halted its response on Sunday, easing immediate concern about wider escalation in the Middle East. Brent briefly slipped below $90 after trading above $100 last week following an intensification of hostilities.

The decline in energy prices eased pressure on inflation expectations and supported government bond markets. European bond futures and government debt across Asia also advanced as yields fell.

The dollar weakened against all Group-of-10 currencies. Gold gained about 1% to trade near $4,100 an ounce.

Equity markets edged higher: the MSCI Asia Pacific Index rose 0.8% and Nasdaq 100 futures gained about 1.4%, following last week’s selloff in chipmakers. European equity futures were also higher.

Attention turned to central bank and economic events this week. The Federal Reserve is due to announce its decision on Wednesday; a softer-than-expected US consumer inflation reading for June has given the Fed more room to remain on hold, according to market participants. The Bank of England and the Bank of Japan are also scheduled to announce policy decisions later in the week.

Corporate earnings are another focus. Microsoft and Meta Platforms report on Wednesday, followed by Apple and Amazon on Thursday. Asian chipmakers including Samsung Electronics and SK Hynix are also due to publish results. Investors will watch guidance on capital spending, particularly the large investments in artificial intelligence infrastructure.

Market participants noted the pause reduced the immediate risk of an oil-driven inflation shock that had reshaped positioning across macro hedge funds and commodity markets. Whether the pause develops into negotiations and how central banks respond to renewed swings in energy prices will be monitored closely.